Interest on Reserves
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INTEREST ON RESERVES

QUESTION: How is interest on reserves treated? Can interest be transferred into the operating account or does it have to stay in the reserve account?

ANSWER
: The Davis-Stirling Act does not regulate how interest is allocated. Governing documents generally do not address the issue either. However, reserve funding plans usually allocate interest. If the funding plan assigns interest to the reserves, then it must stay in reserves. If the funding plan is silent, the board may transfer accumulated interest into the operating account.

Taxes. Interest is taxable. Some boards think that because associations are nonprofit corporations, they don't pay taxes or file returns. That would be a mistake. Depending on how their return is prepared, associations might pay little or no taxes but they must still file a return.

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Adams Stirling PLC